REAL E$TATE 2000: Bubble Jeopardy

When troubled banking heir Woody Woodward, in despair over his failed marriage, jumped out the kitchen window of his fourteenth-floor, 3,500-square-foot prewar co-op at 141 East 72nd Street, many saw it as the tragic dénouement of one of New York’s longest-running tabloid dramas. Woodward’s mother had shot his father in 1955, an event Dominick Dunne fictionalized in The Two Mrs. Grenvilles. The city’s real-estate brokers, on the other hand, saw it as a plum listing – the kind of apartment that doesn’t drop into the market very often. In the week following Woodward’s death, dozens of them pitched his estate, hoping to sell the apartment. With his heirs and the attorneys for the estate clashing over who should handle it, the competition was intense. (Sharon Baum, star broker at the Corcoran Group, was awarded the listing, which sold earlier this year for about $3.9 million.)

The New York real-estate boom is five years old now, and it’s pretty much incinerated everything in its path. Apartments on the block for years are suddenly selling, people dead-set on getting the prices they paid at the top of the last market have turned heady profits, and vast swaths of downtown have been gutted and stuffed with lofts. Neighborhoods uptown and in Brooklyn that were built in some bygone era’s real-estate bubble are suddenly haut bourgeois again.

Still they keep coming: the two-career Wall Street families, dot-com instant winners, suburban refugees, people with five-digit jobs looking to not pay thousands a month to a landlord and have nothing to show for it. There’s more money than space, so the space is getting more expensive, and the battles for it fast and bloody.

According to the U.S. Census Bureau’s Housing Vacancy Survey, done every three years, there were nearly 30 percent fewer apartments for sale citywide last year than in 1996, and 21 percent fewer apartments available for rent. The competition to win the “exclusive” – be the sole broker who markets the place – points to the fact that there’s simply not that much inventory.

“If you get an exclusive, it’s going to sell,” says Michele Kleier, president of Gumley Haft Kleier. “But that doesn’t make this a market you love working in. It’s nice to be able to have something that your customer says, ‘Oh, I’m thrilled’ in getting, rather than ‘I can’t afford better.’ “

“They now have $10 million in cash and don’t know what to do with it. They’re dot-commers who just went public. That’s the spore that ate TriBeCa.”

But there’s not much she can do about that. After a five-year climb in real-estate prices, even swooping discord between the Dow and nasdaq of late doesn’t seem to be slowing down the relentless pace – or the savagery of the process.

“A year or so ago, stock-market ups and downs mattered,” says Kirk Henckels, head of Stribling Private Brokerage. But people no longer think the sky is falling when tech has a bad week: “Neither interest rates nor stock-market fluctuations have had much impact on the psychology of this market.”

And that’s what’s making things ugly.

“Sellers or buyers, they’re all misbehaving,” says the head of one brokerage. “They send out contracts to two or three buyers, get them all signed, and pick whichever one’s higher or comes in first. It’s like the Wild West. Nobody’s word means anything anymore.”

“It’s a war zone among buyers in certain neighborhoods,” says Bruce Ehrmann, a doughboy for Stribling, Wells & Gay in TriBeCa. “It’s extremely difficult for brokers. Because the normal means of handling a transaction sanely are almost useless in this kind of market.

“What do you do when, one day, you have a bid at full asking – which in almost any other market meant you had a deal. You shake hands. And the next day someone else waltzes in and blithely offers $300,000 more. There’s very little way to honorably handle that.”

Supply is so picked through that many brokerages try to keep new listings to themselves. That way, when they find a buyer – and most of the time, they can – they don’t have to split the commission.

This can mean not answering calls from other brokers to see the place. “I’ll have a really good listing, and suddenly, when they call me, I’m never in,” says the head of one brokerage, referring, naturally, to the bad habits of his competitors. “Or, I never send the listing out. Sometimes I don’t even tell people in my own store. The scariest is when I don’t even advertise it. Instead, I advertise a comparable property that sold maybe two years ago and when brokers call to get their client in, I say, ‘It’s sold, sorry.’ If a customer calls, I try to convert them to the real property.”

“Sometimes, when a broker loses an apartment, the broker does whatever they can to get the person you brought in turned down by the board. They’ll send unflattering things from the newspaper to the board anonymously, call attention to things that the board wouldn’t otherwise be aware of,” says one high-end broker. Another broker got a saber-rattling phone call from a bitter rival for an apartment, who threatened, “I have friends in this building. I will do whatever I can to keep these people out.” Fortunately, the threatened party taped the conversation.

“I just heard this half an hour ago,” says another high-end broker. “A broker who went to a funeral at St. James Church – the man who was deceased is, like, as white as you can get, Union Club, Colony Club, Blue Book – and asked the daughter of the deceased if she could have the listing for his apartment. In the church!”

There’s Christmas-list stealing, fax-nabbing, “brokers sending letters to the entire roster at the San Remo bragging about their record sale there – which wasn’t their sale,” complains another broker. “People will shoot their mother for a listing.”

“When I was sick, someone wanted to give me an exclusive, and another broker called them and said, ‘Oh, she’s close to death – why would you give her your exclusive? Better give it to me,’ ” a broker says.

Maybe this town isn’t big enough for all of them. According to the heads of other brokerages, the two most expansionist giants in town, Douglas Elliman and Corcoran, seem to have declared war on each other.

“Barbara Corcoran steals so many brokers, many of them Elliman’s,” causing some of the tension, says a rival brokerage head. But she’s also a Fast Company-style marketing machine in a previously quiet business. The result, says another brokerage head, is a lot of “I won’t show you my apartment ‘cause you didn’t show me yours” going on between the two.

Competition between the megabrokerages has been squeezing the lesser players, too. “In the middle, you get killed,” said Neil Binder, principal of Bellmarc. Smaller companies can be stripped of their star brokers or simply swallowed up. Some just fade away.

Now that demand has surpassed supply, a new-economy goofiness has overtaken apartment valuations. “There are no more parameters for what people should expect to pay,” says Frosty Montgomery of Corcoran. “Somebody who bought an apartment for $3 million two years ago can put it back on the market for $5 or $6 million. People come in with half a million dollars and think, ‘That’s a hefty sum of money. I should be able to buy a two-bedroom.’ And you know what? That’s like finding a needle in a haystack.”

Suddenly, owners of even the most banal real estate are sweating greed as they contemplate what someone might pay. “The worse case is when the seller keeps raising the price,” says Frederick Peters of Ashforth Warburg. “He wants $2.2 million and you bring him that. Only now he wants 2.5, and you have to blow off the 2.2. And then he wants 2.8. By the time you get him what he wants, he figures it’s worth more now.”

As the sellers play their game of price-tease, many buyers are left clutching their paper sacks of cash, not quite understanding how they can make this much money and still be unable to find a place.

“I have a nice, completely board-passable client,” says Alexa Lambert of Stribling, Wells & Gay. “I just call them up to chat and ask after the kids because I have nothing to show them. Otherwise, they think you’ve forgotten about them.” What used to pass for the Carnegie Hill middle class – professionals scraping by without Wall Street bonus bucks, “the normal people,” Lambert calls them, already stretching the definition, “the people making a half a million dollars a year – they won’t be able to afford to live here and put two kids in private school.”

Brokers are constitutionally a-go-go, but even they are starting to get a little overwhelmed by the deal-after-deal delirium of the marketplace.

Ashforth Warburg’s Richard Steinberg puts it this way: “You can’t relate real-estate prices in New York to size or square footage. You have to think of it as art.” Lusting after that three-bedroom Van Gogh on Central Park West is only natural.

The good things that have resulted from the boom – the renovation of mediocre buildings, the cleaning up of semi-abandoned areas – are changing this into a different kind of city. “A very important thing to focus on is how much more money certain people, like securities-and-commodities brokers, have,” says Larry Sicular, head of residential appraisals at Brown Harris Stevens. “They’re shocked that prices have doubled in ten years but forget how much their income has gone up.”

The counterargument to that counterargument, of course, is that nobody else can afford to live in Manhattan. “They’re not building one-bedrooms anymore,” observes Bellmarc’s Lisa Strobing. Instead, everyone’s building prewars all over again, with many of the new buildings – 515 Park, the Empire, the Chatham, 610 Park, the Westbury – consisting almost exclusively of large apartments, two bedrooms-plus. Even as new buildings are built and opened, there are other forces nipping at the housing stock, like the trend of combining apartments and making multifamily brownstones and townhouses whole again. The new rich are hollowing out more and more of Manhattan just for themselves. “As a standard strategy, if we see a studio or one-bedroom, we knock on the neighbor’s door,” says Bellmarc’s Binder. “A studio’s worth $150,000. Combine it with a neighbor, and together, they’re worth $400,000.”

Gil Neary, president of DG Neary Realty, says that, in rentals, “we have a lot more people who are not sharing a bed but are sharing a one-bedroom apartment or a studio.” Volume at the Gay Roommate Information Network, which he also runs, has more than doubled from two years ago.

Barbara Corcoran and other real-estate bulls have said that there’s still room for prices to go up: Just compare Manhattan real-estate prices with the swank districts of Paris or London, which are pricier still.

That pretty much leaves Brooklyn. Middle-class ex-Manhattanites have reconstituted the Upper West Side along the F-train line, filling in the gaps from dumbo through Carroll Gardens and the stinky industrial wasteland of Gowanus, on to the southern half of Park Slope and down toward Kensington. Settlement is cheek-by-jowl with public housing in Fort Greene and Clinton Hill. For grittier youngsters who work in new media, it’s following the L-train four stops in, practically to Bushwick. And, of course, there’s Harlem, too, which has become a buy-a-mansion empowerment zone for professional whites and blacks.

What happens to the people who used to live in those liminal areas is another matter. “In the last three years,” says housing-policy researcher Victor Bach of the Community Service Society, “100,000 units went beyond $500 a month in rent.” As the middle class continues its Lebensraum, “the people that are there get pressed out – in some cases harassed out – by the landlords,” says Bach.

Clearly, somebody can afford all this. As one disappointed buyer puts it, “If, for a million-five, I can’t even get a decent apartment, what’s happening in this city? Who’s getting them?”

“I’m convinced: The higher the price, the younger the buyer,” says William B. May broker Joanne Greene, fresh from selling a $4.5 million apartment at the Westbury. “You have 30-year-olds who two years ago were living in bunk beds with roomies and wearing those p.j.’s with feet sewn on. They now have $10 million in cash and don’t know what to do with it,” says one downtown broker. “They’re dot-commers who just went public. That’s exclusively who they are. That’s the spore that ate TriBeCa.” Brown Harris Stevens broker Elizabeth Sample attributes the run-up, in part, to these guys. “In San Francisco and Silicon Valley, real estate is going for 30 percent over ask.” With droves of them now washing up in Manhattan, it’s increasing valuations. “It’s people like Michael Dell,” she says, referring to the 35-year-old Dell Computer Corporation founder who recently spent $22 million – $4 million over asking – for a twelve-room apartment at 950 Fifth Avenue. “They negotiate differently from New Yorkers. They hit the price and go above it and sign immediately. New Yorkers, they negotiate and try to delay a week.”

Just think how hard this has been on those who are rich in an old-fashioned, low-bandwidth, East Coast way. “I thought we had the money,” says a young, frustrated Upper East Sider who works for a family business (her fiancé works on Wall Street). “I thought it would be easy. And we do have money, but not for this market. To decide over this weekend to be willing to go up to $1.2 million and renovate at the age we are – I mean, that’s double the price of our parents’ houses.” How old are they? “In our mid-twenties. It’s very scary. Say we’re in our late twenties. It sounds better.”

Psychoanalyst Dr. Gail Reed has noted the way housing hysteria has affected settled New Yorkers, especially with the steady approach of the luxury-decontrol thresher (which goes into effect once your income breaks $175,000 for two years running or your apartment’s rent eases over the $2,000 barrier). “You think, boy, they live in this big apartment, and they probably own it. And that turns out not to be the case,” she says. “You think that they’re quite settled, but they’re actually secretly very worried, alarmed, anxious that they’re going to lose their apartment. The prices are especially a problem for people considering a divorce, when they discover that they can’t afford to move just down the block.” Forced exile to Wantagh is a sentence few West End Avenue types can bear to consider.

So, how to find shelter in this typhoon of hype and escalating prices? A surprising number of brokers are sitting it out in their rent-regulated apartments. Even Barbara Corcoran had a hard time finding a Park Avenue co-op where she could stash her $3 million (and she’s still waiting to hear from the board). Another broker declares from his rental, “If I had to spend right now, I wouldn’t.”

But if you have to, you’d better move quickly and be decisive, say brokers. And don’t worry about being in love.

Also, prepare for a quick and decisive tussle. Brokers say you should be prequalified for a mortgage and try to line up some backup method of qualifying for the place that doesn’t require a mortgage. Have that deposit money handy. It helps to remember that “this is a nonsmart environment,” says Sotheby’s International broker Dolly Lenz. “It has nothing to do with intelligence. It has to do with luck, almost.”

“I’ve said to clients, you don’t even want to know how much it costs,” says broker Linda Stein of Edward Lee Cave. “In situations where there are big buyers and no inventory, the only way you can explain these numbers to them is to tell them how much they can get for their own apartments. Because those numbers are also ridiculous. If I take you shopping and you’re hypothetically John McEnroe, you want this, this, and this. And it’s $18 million. He says, ‘Are you fucking crazy?’ You have to say, ‘But John, you can get $22 million for yours.’ “

“Nobody knows how high it will go or when it will stop,” says broker Greene. “We all know something’s going to happen eventually. I mean, how greedy can everybody get? I guess pretty greedy.”